Insurance Company Found Not Liable for Imported Food Spoiled During COVID Lockdown

Guardian Insurance Company was found not to be liable for the losses of a food importer totaling over $500,000 that expired due to COVID-19 lockdowns, according to a May 24 opinion from the U.S. District Court for the District of Puerto Rico. Since the stay-at-home orders that allegedly led to the seafood imports rotting exempted the food industry, Guardian was able to avoid liability for the food losses.

After about 10,936 boxes of insured seafood product, estimated to be worth $552,851.50, went bad, the importer, Northwestern Selecta, sought insurance on the goods. Since pandemic-related lockdowns limited the operations of "restaurants, cafeterias and other food service businesses," many orders for Northwestern Selecta's goods were canceled. Guardian said it was not on the hook for the losses since they were not "caused by civil authority and therefore not covered."

The "civil authority" clause in the insurance contract says, "The subject-matter insured is covered against the risk of damage or destruction by civil or military authority for the purposes of preventing further damage or to prevent or mitigate a conflagration, pollution hazard or threat thereof provided that such damage or destruction is not caused or contributed to by war, invasion, revolution, rebellion, insurrection or other hostilities or war like operations or by any risk specifically excluded in this insurance." In the opinion, Judge Francisco Besosa took a particular look at the terms "damage or destruction" and "by civil or military authority."

After determining that the seafood product was not "damaged," but could plausibly be found to be destroyed, Besosa looked at whether the injury was caused by civil or military authority. He found that the stay-at-home orders "expressly exempted businesses operating in the food supply chain," thereby removing the civil authority culpability for the destruction of the seafood products. Thus, Besosa sided with the insurance company and dismissed the case.